delong206_John BlandingThe Boston Globe via Getty Images_debt

Economics

债务错乱综合症

Feb 7, 2019 J. Bradford DeLong

伯克利—过去十年，全球北方政坛因为过度担忧政府债务和赤字而陷入了高度狂乱。但两个最新苗头表明情况终于要改变了。

本月早些时候，我读了声名显著、知识渊博的肯·罗格夫（Ken Rogoff）发表在伦敦《星期日泰晤士报》上的一篇与英国脱欧相关的专栏。他最著名的工作是在这个十年之初就宣称，政府不可让债务-GDP之比攀升至90%以上。但在这篇专栏中，罗格夫认为“[他]一直不明白，为什么英国担心降低债务-GDP负担[目前为84%]的问题，目前英国增长温和，不平等性高企，并且……利率……在下降……”

随后，上个月月底，《金融时报》刊登了记者布兰登·格里利（Brendan Greeley）的文章，他的报道让他收到了来自负责任联邦预算委员会（CRFB）、他所谓的“惊慌失措的电子邮件”。CRFB是一家美国智库，曾向时任美国众议院预算委员会主席的保罗·瑞恩（Paul Ryan）授予财政责任奖。在这封电子邮件中，CRFB警告我曾经的老师奥利佛·布兰查德（Oliver Blanchard）在美国经济学会的演讲中所提出的“错误概念”。布兰查德的意思是，公共债务是一项工具，政府应该在需要的时候使用它。

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J. Bradford DeLong

Writing for PS since 2002
247 Commentaries

J. Bradford DeLong, Professor of Economics at the University of California, Berkeley, is a research associate at the National Bureau of Economic Research and the author of Slouching Towards Utopia: An Economic History of the Twentieth Century (Basic Books, 2022). He was Deputy Assistant US Treasury Secretary during the Clinton Administration, where he was heavily involved in budget and trade negotiations. His role in designing the bailout of Mexico during the 1994 peso crisis placed him at the forefront of Latin America’s transformation into a region of open economies, and cemented his stature as a leading voice in economic-policy debates.

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J. Bradford DeLong Feb 24, 2019

A longer version, with some paragraphs cut during the editing process; https://www.bradford-delong.com/2019/02/department-of-huh-this-has-always-struck-me-as-so-wrong-on-so-many-levels-ever-since-the-first-politician-promulgated.html#comments
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George H Blackford Feb 12, 2019

It seems to me that Debt Derangement Syndrome exists on both sides of the ideological divide.
From 1928 through 1945 the income share of the bottom 90% of the income distribution increased from 51% of total income to 66% while the income share of the top 1% fell from 24% to 13%. In 1928 total debt (public + private) was 192% of GDP and 178% of GDP at the end of WW II (depending on how total debt is measured; 178% of GDP is comparable to 1928, 157% is comparable to years subsequent to 1945. See the appendix at: http://rweconomics.com/htm/WDCh3e.htm ).
From 1945 through 1973 the income share of the bottom 90% more or less stabilized at 66-67% of total income as that of the top 1% continued to fall from 13% t0 9%. Total debt was also relatively stable during this period falling to 152% of GDP by 1973. At the same time the average real income (measured in 2017 prices) of the bottom 90% increased from $19,380 to $37,320 while the average real income of the top 1% increased from $285,894 to $381,584. Then things changed.
By 2007 the income share of the bottom 90% had fallen to 50% of total income, below where it was in 1928, and the income share of the top 1% had increased to 24%, back to where it was in 1928. At the same time the average real income of the bottom 90% stagnated as it fell from $37,320 to $37,170 while the average real income of the top 1% increased from $381,584 to $1,128,375. (By 2017 the average real income of the bottom 90% had fallen to $34,580.)
These changes in average income did not occur in isolation. Total debt also increased during this period from 152% of GDP in 1973 to 349% by 2007. Now to the casual observer it would appear that the stagnation of incomes at the bottom of the income distribution during this period while the incomes at the top soared may have had something to do with the more than doubling of total debt relative to GDP that took place from 1973 through 2007.
I would suggest that it is the increase in debt relative to GDP that made the increase in the concentration of income during this period possible, and that trying to solve this problem by a “standard economic policy” that increases public debt relative to GDP is only going to make the problem worse in the long run. See: http://rweconomics.com/LTLGAD.htm
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Len Charlap Feb 11, 2019

Let's see what has happened every time we had "austerity at the Treasury in the boom."

The federal government has balanced the budget, eliminated deficits for more than three years, and paid down the debt more than 10% in just six periods since 1776, bringing in enough revenue to cover all of its spending during 1817-21, 1823-36, 1852-57, 1867-73, 1880-93, and 1920-30. The debt was paid down 29%. 100%, 59%, 27%, 57%, and 38% respectively. A depression began in 1819, 1837, 1857, 1873, 1893 and 1929.

Which do you prefer?

"The definition of insanity is doing the same thing over and over and expecting different results"
or

"Those who don't know history are destined to repeat it."
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B Wilds Feb 10, 2019

To many of us who view the economy under "old school rules," the economy become a glorified pyramid scheme. The growth of debt moves us down the path towards a Minsky moment where an unsustainable mountain of debt collapses in upon itself. When this happens the only safe place to store wealth will be in "tangible assets" and the only lenders will be those who print the money that nobody wants.

History shows that at some point when inflation begins to exceed the rate of interest paid people start altering their buying habits which can create a self-driving feedback loop. The article below explores such an event and the ramifications that come with it.

https://brucewilds.blogspot.com/2018/11/a-minsky-moment-is-when-debt-pyramid.html
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Robert H. Dugger Feb 10, 2019

Brad, A question.

I understand why you argue that federal borrowing is not a burden. However, does it matter who receives and who has to make debt service payments in future years? Is there analysis of this?

For example, at first glance it seems that those households who directly or indirectly hold the most US Treasury debt will receive most of the debt service payments. Consider foreign households who directly and indirectly own large amounts of US debt. China and Japan alone hold more than 10% of US debt and pay no US federal taxes to service that debt. If these conditions continue into the future and federal debt levels continue to rise, wealth transfers from US households to Chinese and Japanese households will increase.

A further consideration. Some argue that deficits in recent years are to a considerable degree the result of tax policies that contribute to rising US income and wealth inequality. Some also argue that wealthy households directly and indirectly own more Treasury securities than ordinary households. If true, is it possible that future-generation ordinary households will be making debt service payments to future-generation wealthy US households and foreign debt holders that exceed the benefits that those future ordinary US households receive from greater current US government borrowing?

If there's research on these generational and demographic debt-service wealth transfer questions, please let me know at rhdugger@hanprov.com. Thanks.
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Per Kurowski Feb 10, 2019

“the bond market would signal when the deficit needed to be cut”
That signaling is torpedoed by the fact that risk weighted bank capital requirements, as well as other distortions, like tax exemptions, favor public over private debt.
https://subprimeregulations.blogspot.com/2016/11/olivier-blanchard-agrees-there-is-need.html
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Julius Klein Feb 10, 2019

seriously? Tell that to Argentina, Greece, Russia, Mexico and any number of other countries that have had debt crisis. I know the economist will point to other factors, such as pegs to the USD rates of the local currencies for example, but the reality is that no one, not even the USA, can spend more money than they take in (either as labor in the house, or as the government in taxes) forever. The long term consequences are enormous if the debt load (which we leave to our children and grand children, to finance our fun and benefits today) is so large that it constantly eats up more and more of the budget. Sure rates are low today, even artificially low, but who knows where they will be in 10/15/20 years. We cannot be a slave to debt. I fear that people such as the author are the same that believe we can finance university, healthcare, housing, and a "living wage" every month, for everyone forever, with no real consequences, just print more money. Reality is that in the real world, it will not work as the holders of that debt would realize they are getting paid back with $$ with less and less value. We need government accountability, not more stupidity in Washington.
- Paul Friesen Feb 11, 2019
  
  If you read the piece, you will find that, like all Keynesian economists, the author does not advocate running deficits forever. When demand is insufficient to create full employment, the government should run a deficit to make up the shortfall. But when demand recovers, the government should run a surplus to pay down the debt.
  
  The only problem with Keynesian economics is that it is never put into practice. During the slump after 2008, there was a bit of a deficit, but never enough to return to full employment. And now, when the U.S. economy is booming, you have a government that has cut taxes and raised the deficit in the middle of the boom.
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- Len Charlap Feb 11, 2019
  
  Let's see what history says about this comment.
  
  1. All 6 periods the federal government spent less it took in and significantly (10% or more) reduced the debt were ended by a terrible depression. Also every depression we have suffered has been preceded by such a period.
  
  2. The largest debt ratio we ever has was in 1947 when the debt owed to the public as a percentage of GDP was 47% larger than it is today. Did that debt "eat up more and more of the budget"? Was it a burden to the children and grand children of the greatest generation? On the contrary, the period from 1946 to 1973 has been called the Great Prosperity during which GDP growth averaged 3.8% and real median household income surged 74%. Did we pay down that enormous debt? On the contrary, we had deficits for 21 of those 27 years and the debt increased 75%. We invested the money in America so the economy grew so much, the debt became insignificant.
  
  (If you want to raise the "Europe was Rubble Myth,". look at http://piketty.pse.ens.fr/files/capital21c/en/pdf/F1.1.pdf which shows that the out put of Europe was about the same as the US in the Great Prosperity 1946 - 1973).
  
  4. Federal debt service is currently 1.36% of GDP. https://fred.stlouisfed. org/series/FYOIGDA188S
  
  But that does not account for the fact that the FED returns the profit it makes to the Treasury. This includes the interest paid in the
  Treasury bonds it holds. This has been running at a little less than $100 Billion each year. http://www.latimes. com/business/la-fi-
  federal-reserve- profit-20160111-story.html
  
  When you take this into consideration, this brings the cost of federal debt service well below 1% of GDP, which is not only trivial, but
  which is very low by historical standards.
  
  The interest on the debt is not a red herring; it is a large purple tuna.
  
  5. Can you point to a period in US economic history when too high debt or deficits or debt service has negative impacted our economy?
  
  6. It is about time that people learn that the finances of the federal government are completely different from their personal finances. This is primarily due to two facts:
  
  A) Thru the FED the federal government can create as much money as it needs out of thin air.
  
  B) The federal government MUST create the money we need to conduct commerce and so than banks can make loans. The deficit measures the flow of this money FROM the federal government TO people, businesses and state & local governments.
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Chris S Feb 10, 2019

Excellent piece. Thank you. For the reason for this "fit of denial," see David Von Drehle's piece in the Washington Post where he says, "printing more money can eventually lead to inflation." Denial of the need for monetary and fiscal policy measures is due to the extreme risk-avoidance and essentially conservative approach of these policy makers and their advisors. I.e., because spending may result in inflation later, it is better not to spend.
- Len Charlap Feb 11, 2019
  
  There's this little equation:
  
  P = (MV)/S
  
  where P is prices , M is the amount of money in the economy, V measures the frequency that money changes hands usefully, and S is the dollar amount of the amount of stuff, goods and services, we can produce in some time period.
  
  A word on V. If the government gives Scrooge McDuck a Billion for advice on the comic book market, M increases by a Billion, but if Scrooge puts the bucks in his basement, and forgets about it, that doesn't affect P at all. That Billion has a V of 0. Also, if Scrooge lose a bet to Daddy Warbucks, and the Billion moves from Scrooge's basement to Daddy's, that is a change, but the V does not change because it is not a useful change. It doesn't affect commerce.
  
  Inflationistas cannot understand an equation with more than 2 variables. To them it looks like:
  
  P = M.
  
  You print more money, you debase the currency, prices go up. End of story. Of course this might happen if S and V remain constant, but in point of fact, the causes of most, if not all excessive inflations since WWI has been S getting too small, for example, shortages. The anchovy harvest failed in 1972. There was a shortage of livestock feed. Then came the oil embargo. Prices rose.
  
  What usually happens is that when M increases, this allows more money to be spent so production increases, i.e. S increases, so that the effect on P is minimal.
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Mirek Fatyga Feb 9, 2019

having grown up in a socialist country, I do always cringe when I read, or hear, pronouncements that "public debt really does not matter". Paul Krugman also likes to say this, "because we can print our own currency" says Paul. We are different this way than other countries, says the Nobel Prize Authority.

Why don't we just abolish money, then? A simple website entitled "to everyone according to their need" will do. You type in the number, the government prints the money, and we will all live happily ever after?

If the debt keeps rising, relative to economic output, something is out of balance. And things that our out of balance eventually do fall down. Either the government spends too much without growing the economy in return, or the government does not tax enough, relative to legitimate expenditures. This is not to say that governments cannot run deficits during recessions to stimulate the economy, but the relentless growth of public debt, over decades, says that the economic system is not sustainable.

In the US currently, also in the UK, it seems pretty clear what is out of balance. Moneyed classes got upper hand over labor, and are running their respective countries into a gilded age wall. You cannot have a market economy without consumer markets, and you can prop up consumer markets with debt for only so long.

Something else is happening. World population more than doubled in my lifetime. Not to sound catastrophic about this, but it definitely is a problem in a short term that the economic profession seems curiously blind to. If we were to extend EU consumption of oil to the world population, world oil production would have to double. To NA levels, quadruple. Not a hard calculation, data is available. Methinks it is a hard thing to do. This means that achieving conventional economic growth is hard currently, until the economy gets retooled, assuming that it can be retooled. Fiscal stimulus spikes the price of commodities, and it is sayonara to visions of growth, hello financial crisis.

In the long,long term, the very concept of economic growth needs to be rethought. Consumption of finite resources cannot grow exponentially forever. Permanent yoy increase in GDP is exponential growth. Here is a question for Mr Delong: how do we turn a visit to a doctor into a source of money, rather than a cost which has to be financed from the source of money, with the source of money being forever growing production of goods that require scarce resources? How do we?
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Per Kurowski Feb 8, 2019

“The Global North has excessive fear of government debts”

Really? In 1988 when the Basel Accord assigned America’s public debt a 0% risk weight, its debt was about $2.6bn, now it owes around $21.7bn and still has a 0% risk weight.

And are current low interest rates on public debt really market rates?
https://subprimeregulations.blogspot.com/2013/01/the-subsidized-risk-free-rate.html
- Len Charlap Feb 11, 2019
  
  Per do you know that $3 or 6 TRILLION of that $21 TRILLION debt is owed to the FED which returns the interest on it to the Treasury?
  
  Do you realize that about 5 TRILLION of it is owed to other branches of the federal gov, so that that debt is merely an accounting fiction. (Actually the whole debt is merely an accounting fiction since we can create as much money as we want, but I won't live long enough to explain that to you.)
  
  Per, do you realize that a million dollars in today's economy means a lot less than a million in 1946 or 1835? If you want to impress us with how big the debt is, you have to look at the debt ratio, debt/GDP. The debt ratio outside the federal gov is about 76%.
  
  It was 109% in 1946. 47% higher than today's.
  
  Did that rob the next generation of their future? No, in the next 27 years have GDP growth averaged 3.8% and real median household income surged 74%. (If you want to raise the "Europe was Rubble Myth,". look at http://piketty.pse.ens.fr/files/capital21c/en/pdf/F1.1.pdf which shows that the output of Europe was about the same as the US in the Great Prosperity 1946 - 1973).
  
  Did we pay down that enormous debt? No, we had deficits for 21 years out of the 27 and INCREASED the debt in dollars 75%.
  
  Well, what happened to that huge debt? Since we invested in America, the economy grew so much, the debt became insignificant.
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Paul Hayes Feb 8, 2019

For the UK at least it's pretty clear why. One of Simon Wren-Lewis's blog articles explains: https://mainlymacro.blogspot.com/2013/09/the-scandal-of-austerity-deception.html
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Egmont Kakarot-Handtke Feb 8, 2019

The day when WeThePeople sends debt-deranged economists to hell

Comment on Bradford DeLong on ‘Debt Derangement Syndrome’

After some name-dropping (Rogoff, Blanchard) and false-hero-worshiping (eminent, highly knowledgeable) the applause-troll Bradford DeLong offers a piece of economic wisdom: “Whenever the private sector stops spending enough to keep unemployment low and jobs easy to find, the public sector needs to fill the gap in aggregate demand.”

Now, good old Keynesianism stood under the premise of temporary deficit spending with budget balancing over the business cycle. Somehow this did not happen and government debt rose worldwide faster than GDP. A permanently growing public debt means that a market economy is on the permanent life-support of the state. Some people got the uneasy feeling that permanent debt growth is unhealthy and cannot go on forever. They blew the panic whistle several times in the past decade but were always proven wrong.

At present, the loudspeakers of the profession are deeply relaxed and Bradford DeLong scolds the scaremongers: ”I now have hope that future economists will remember the sorry history of this past decade and prevent it from being repeated.”

In his utter scientific incompetence, Bradford DeLong completely ignores the massive immediate and delayed distributional effects of growing public debt.

To make the argument short, the macroeconomic Profit Law is given as Q=Yd+(I−S)+(G−T)+(X−M) which reduces to Q=(G−T) with Yd, I, S, X, M blanked out for a moment. The reduced Profit Law says that the profit of the business sector as a whole Q is equal to the deficit (G−T) of the public sector. In a nutshell: Public Deficit = Private Profit. In other words, permanent public deficit-spending is a permanent free lunch for the Oligarchy.

As a rule of thumb, the financial wealth of the Oligarchy grows in lockstep with the public debt. In other words, fabulous wealth is the mirror image of fabulous public debt ($21.5 trillion).

The deficit spending on social measures does NOT benefit WeThePeople as a whole because the benefits of one group are paid for in real terms through unnoticeable stealth taxation via the price mechanism by the complementary group.

The permanent free lunch for the Oligarchy is beefed up with interest on a permanently rolled-over growing public debt. This amounts to reversed progressive taxation of WeThePeople by the IRS on behalf of the Oligarchy.

Finally, the national debt is NOT savings of WeThePeople but deferred taxes. In order to eventually redeem the national debt, the government has to eventually tax WeThePeople. This will be the day when WeThePeople sends debt-deranged economists to hell.

Egmont Kakarot-Handtke
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Paul Friesen Feb 7, 2019

I very much agree. But there's one thing I can never understand.

In 2008, China was the one country that really put Keynesian economics into practice. It created a stimulus plan that was about 15% of GDP and rolled it out very fast, spending it not only on infrastructure, but also on incentives to consumers to buy durable goods. Other countries had stimulus plans of around 2%, and were much slower at spending them.

The results were obvious. China was soon the main bright spot in the world economy. Its demand for raw materials meant that many commodity producing countries also did relatively well.

What I can't understand is why these facts are never mentioned. They seem to me to be the best hard evidence we have that Keynesian economics works, and yet Western economists, even Keynesians, never say anything about them. Can it be that the torrent of China-bashing propaganda to which we are subjected has influenced even them, and made them unable to admit that the country has ever done anything right?
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